Macro Crossroads | Navigating the Loop in China’s Economy: Resilience, Rebalancing and Policy Priorities

Prof. Zhu Ning

China’s economy has proved remarkably resilient through a historic property downturn, trade tensions and geopolitical uncertainty. Yet beneath that resilience lies a growing tension between powerful supply side and softer demand trends at home. This tension is increasingly shaping both China’s economic policy choices as well as its relationship with the world.

At Primavera Capital’s 2026 Global Investment Conference, I explored these questions with Tao Wang of UBS, Andrew Tilton of Goldman Sachs and Shaun Rein of China Market Research Group. Our discussion pointed to a complex, self-reinforcing dynamic at the heart of China’s economy today: restraints on policy options happen to coincide with domestic imbalances; those imbalances are increasingly reflected in large trade surpluses abroad; and growing external pressures, in turn, reinforce the policy focus on domestic economic security, resilience and industrial strength.

For investors waiting for another wave of stimulus on the scale of China’s response to the global financial crisis, Wang was unequivocal: “There is no bazooka coming.” Despite the property downturn and a series of external shocks, Beijing has refrained from large-scale stimulus. Policy priorities have evolved, with greater weight placed on stability, financial security and resilience in an increasingly uncertain world. Tilton similarly noted that policymakers have continued to support manufacturing and technological upgrading while exercising considerable restraint in supporting domestic demand.

The divergence between supply and demand side policy support is increasingly visible. China’s manufacturing capabilities, supply chains and technological competitiveness grow more formidable, while consumption and broader domestic demand have remained relatively weak. Rein described a K-shaped consumer market: much of the mass market remains cautious, even as sentiment among wealthier consumers has improved and opportunities remain for strong premium brands.

The consequences extend beyond China. But as Wang put it, “The external imbalance is a reflection of domestic imbalance.” She emphasized the importance of addressing domestic challenges, especially boosting domestic consumption. China produces more manufacturing goods than its domestic economy currently absorbs, with more of that output finding its way into global markets. Tilton noted that, while some economies run larger surpluses relative to GDP, China’s sheer scale makes its external surplus historically unusual — and a growing source of global trade friction.

Yet there are no easy adjustments to be made as Chinese companies continue to gain global market share. Tilton noted that European countries face practical constraints in adopting substantial trade barriers. China likewise has leverage in its trade relations through its role in critical supply chains, including rare earths. The result could be an uneasy combination of rising trade tensions and continued economic interdependence. Nor, Wang argued, would a substantially stronger renminbi address the external imbalance without major changes in underlying domestic fundamentals.

The challenge therefore comes back to rebalancing at home. Stronger household incomes and social protection, healthier corporate profitability and the orderly adjustment of excess capacity, giving businesses greater confidence to invest and hire, and using the central government balance sheet more actively could help domestic demand play a larger role in sustaining growth.

China’s industrial strength has provided considerable resilience in an uncertain world. The next challenge is to preserve that strength while advancing domestic rebalancing — and, in doing so, ease some of the external pressures that have accompanied China’s economic success.